Misconceptions About Bitcoin

Bitcoin, blockchain, smart contracts, ICOs, word salad. 2017 has been a big year for cryptocurrencies, and blockchain technology. Bitcoin is the original cryptocurrency, and it is a massive understatement to say that it is not widely understood, but below are a few common misconceptions widely held.

“You have to buy a whole bitcoin.”

False. You can buy a fraction of a bitcoin, because bitcoin is by design extremely divisible. In fact, a single bitcoin is actually divisible down to eight decimal places: 0.00000001. That is in part why people are so excited about the possibility of micro-transactions using cryptocurrencies, because unlike the US Dollar (which is divisible down to two decimal places: 0.01) you can send very very small amounts of bitcoin on the network.

“I can hold bitcoins in a wallet.”

Not exactly. There actually aren’t any bitcoins in the bitcoin blockchain. At least not in the sense of pennies, nickles, dimes, and quarters. What is “held” at addresses are “unspent transaction outputs.” These are known as UTXOs. UTXOs are used as inputs into new transactions on the bitcoin network. Also, when you see a bitcoin “balance” when you open your bitcoin wallet you aren’t actually seeing an amount of bitcoin held by the wallet software. What you see is a total of UTXOs that you control through the use of private keys associated with the UTXOs. Put it this way, you can’t take your “bitcoin” in your “wallet,” and go home. The UTXOs live on the bitcoin network, and your wallet software allows you to access it.

“Bitcoin is anonymous.”

Not really. It is much more accurate to say that bitcoin is pseudoanonymous. With a combination of the Tor browser, VPNs, dark magic, and dumb luck maybe you could make bitcoin “anonymous,” but before you go down that route you should talk to Ross Ulbricht about how well that works.

Conclusion

There are many more misconceptions about bitcoin, but these are three I see time and time again. If you want to learn more about bitcoin you should check out Bitcoin.org, or CoinCenter.org. Both great sites, and great resources. Of course you can always just read the Wikipedia page.